Relative income poverty: methodology

The income measure used in the Households Below Average Income (HBAI) report is weekly disposable equivalised household income.

Household income means it includes all sources of income from all household members, including dependents.

Disposable income means that it is income after the following deductions have been paid:

• income tax 
• National Insurance contributions
• domestic rates/council tax
• contributions to occupational pension schemes
• all maintenance payments
• student loan repayments
• parental contributions to students living away from home.

Equivalised household income means the income has been adjusted for household size and composition, taking an adult couple with no children as the reference point.

For example, imagine there was a single person, a couple and a family of four all living on the same income. The person living alone would be able to afford a better standard of living than the couple, whereas the family of four would struggle to maintain the same standard of living as the couple.

Therefore in order to reflect living standards, the process of equivalisation adjusts the income for the single person upwards, leaves the couple’s income as it is and adjusts the income for the family of four downwards.

In the Households Below Average Income (HBAI) report, housing costs are defined as: rent or mortgage interest payments, water rates, structural insurance payments and ground rent and service charges.

However, in the Income Dynamics report housing costs have been defined simply as weekly gross housing costs.

In the case of renters, these housing costs will include service and water charges because this is how the information is requested on the questionnaire. For mortgage payers, these amounts will not be included. There is also no information collected on cost of structural insurance payments.

Another difference is that, for the HBAI methodology, only the interest element from a repayment mortgage is deducted as housing costs, whereas in the Income Dynamics report both the repayment and interest elements are included as part of ‘gross housing costs’. Compared with standard HBAI methodology, the after housing costs income of such households will be understated.

From 2012/13 the Family Resources Survey disability questions were revised to reflect new harmonised standards. Disabled people are identified as those who report any physical or mental health condition(s) or illness(es) that last or are expected to last 12 months or more, and which limit their ability to carry out day-to-day activities a little, or a lot. This is in line with the Equality Act definition.

The ethnicity questions used in the Family Resources Survey are in line with National Statistics’ harmonisation guidance, which is available via the Office for National Statistics harmonisation website. That is, they adopt the standard way of collecting information on the ways in which people describe their ethnic identity. Individuals have been classified according to the ethnic group of the household reference person (the highest income householder) which means that information about households of multiple ethnicities is lost. Sampled numbers within smaller ethnic minority groups in Wales are small, and for this reason it is necessary to group some minority ethnic groups into an overarching "Non-white ethnic group" category, and to present analysis as five-year averages.

For the 2019-20 publication, a minor methodological revision was made to the HBAI data series by the Department for Work and Pensions (DWP) to capture all income from child maintenance. This resulted in more income from child maintenance being included, in turn slightly increasing some household incomes and so tending to slightly reduce low income rates for families with children. The full back series (back to 1994/95) was revised so that comparisons over time are on a consistent basis across the full time series. In terms of the impact of these revisions, in most cases the percentages of people in low income were unchanged rounded to the nearest percentage point.